A joint-venture agreement with Chesapeake Energy Corp. (CHK) for
the development of the Highway 706 shale gas project in Pennsylvania is
fueling Epsilon Energy Ltd.'s (EPS.T) shares Tuesday.

In Toronto, Epsilon is up 32 Canadian cents, or 11%, to C$3.32 on volume of about 2.3 million shares.

Epsilon has signed a letter of intent with major gas producer
Chesapeake for the development of the Highway 706 Prospect in the
Marcellus Shale. Chesapeake will earn a 50% stake in a proposed joint
venture by paying $5 million in cash upfront and by carrying the first
$95 million of Epsilon's 50% share of leasehold, drilling, completing,
equipping and gathering costs attributable to the prospect.

Closing of the joint-venture agreement is expected Feb. 1 and the
carry obligation is expected to be completed within 30 months.

Epsilon said the proposed joint venture will allow it to invest in
the development of its other North American properties, including other
Marcellus Shale assets in New York, Bakken Oil assets in Saskatchewan
and Utica Shale assets in Quebec.

Clarus Securities said its initial reaction to the deal is "very
positive," noting it "brings in one of the premier shale gas players as
a technical partner, which should allow Epsilon to gain very valuable
information in the development of gas shale."

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